Washington, D.C. - Failure to oversee Whitefish and Cobra Acquisitions’ contracts might result in the Puerto Rican government losing access to Federal Emergency Management Agency (FEMA) reimbursements for repairs to the power grid after the disaster caused by Hurricane María nearly three years ago.
In a report, the U.S. Department of Homeland Security's Office of the Inspector General (OIG) pointed out failures by Puerto Rican government offices and FEMA in the supervision of contracts granted to Whitefish and Cobra, which totaled more than $2 billion.
As a result of these failures - lack of oversight on unreasonable rates and order changes that totaled hundreds of millions of dollars - the Puerto Rico Electric Power Authority (PREPA) may have lost the right to full reimbursement through FEMA's public assistance program.
Although it claims that PREPA complied, after an amendment, with federal requirements for Whitefish's services, the OIG complained that the public utility failed to determine whether the costs of the work were reasonable.
“The Whitefish contract costs may not be reasonable because PREPA incurred the costs at much higher contract rates than the rates Whitefish originally proposed,” it said.
The Department of Homeland Security's OIG indicated that the rates established in the contract with Whitefish on September 26, 2017, were 57 percent higher than those proposed six days earlier. As an example, it indicated that the hourly rate of an apprentice lineman increased from $83 to $188.
Equipment usage rates, meanwhile, increased by 7 percent compared to the original bid. In the case of outsourced equipment, rates were 881 percent higher than Whitefish's rates when using its own equipment. The amended contract also established extremely high costs, such as $140 hourly for a field office administrator and $616 per hour for a senior project accountant.
"Despite these multiple substantial rate increases, PREPA did not assess the reasonableness of the rate increases before signing the contract amendment (with Whitefish)," the report added.
Since November 2018, FEMA has been evaluating reimbursements to PREPA for the Whitefish contract. The public corporation paid at least $36 million to the company.
The investigation noted that PREPA, the Central Office for Recovery, Reconstruction, and Resilience (COR3), and FEMA did not provide adequate oversight of the contract with Cobra, which as by July 2019 had billed the public company $852 million. According to the OIG, FEMA did not determine whether the costs of Cobra contracts were "reasonable and eligible" for reimbursement through the public assistance program.
“As a result, some of the Whitefish contract costs may not be reasonable and eligible for PA funds, and PREPA may be at risk of not receiving full reimbursement of the Whitefish contract costs,” the report added.
The Homeland Security OIG stressed that PREPA did not establish the terms and conditions of the contract with Cobra on the scope of the work, the costs, and the schedule before the company began repairing the power lines.
"FEMA reimbursed more than $852 million for Cobra contract costs without confirming that PREPA or Puerto Rico had demonstrated a high degree of oversight of the Cobra contract," the OIG said.
The OIG corroborated administrative deficiencies in the 15 specific projects assigned to Cobra examined. The analysis reflected 41 order changes approved by PREPA months after costs were exceeded, with a $391 million increase in billing.
In six of the 15 projects, Cobra did not sign the specific terms to complete these works until four months after they were approved by PREPA. In total, the company did not even sign 32 of the 41 documents with order changes.
According to the OIG, PREPA acknowledged having established an alternative system for the payment of invoices from Cobra that avoided issuing order changes earlier and went beyond the restrictions usually imposed on amounts that exceed an original agreement.
As for COR3, the report notes that this office, created in October 2017, was unable to supervise PREPA and its contracts " to ensure compliance with Federal regulations and PA program guidelines."
COR3 was unable to conduct a full assessment of PREPA’s reimbursement requirements for the first $520 million of the Cobra contract, according to the report.
In an independent investigation, the U.S. Attorney´s office in San Juan filed criminal charges in September 2019 against two high-ranking FEMA officials and former Cobra president for irregularities in the process that awarded contracts for $1.9 billion to that company.
The trial for fraud and bribery, among other charges, against Ahsha Nateef Tribble, who was administrator for FEMA Region 2, and former Cobra president Donald Keith Allison, who are believed to have worked together to award the contracts, is scheduled for January 2021.
Jovanda Patterson, who was FEMA’s deputy chief of staff, pleaded guilty in February to wire fraud and acts affecting a personal financial interest.